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Related Experiment Video

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The Joint Effect of Social Comparison and Social Distance on Evaluation of Intertemporal Choice Outcomes in Event-related Potential Studies
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The endowment effect: Loss aversion or a buy-sell discrepancy?

Gal Smitizsky1, Wendy Liu1, Uri Gneezy2

  • 1Department of Marketing.

Journal of Experimental Psychology. General
|January 14, 2021
PubMed
Summary
This summary is machine-generated.

This study challenges the loss aversion explanation for the endowment effect. Researchers found evidence supporting a buy-sell strategy as the primary driver of higher selling prices compared to buying prices.

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Area of Science:

  • Behavioral Economics
  • Cognitive Psychology

Background:

  • The endowment effect describes the tendency for individuals to value an object more when they own it than when they do not.
  • Loss aversion is the predominant theory, suggesting owners fear losing the object more than gaining it.

Purpose of the Study:

  • To differentiate between loss aversion and a buy-sell discrepancy as explanations for the endowment effect.
  • To investigate the strategic pricing behavior of individuals in ownership scenarios.

Main Methods:

  • Introduced a novel 'Pay-to-Keep' condition alongside traditional willingness-to-accept (sell) and willingness-to-pay (buy) conditions.
  • Compared stated values across the three experimental conditions to identify underlying mechanisms.

Main Results:

  • No empirical support was found for loss aversion as the primary driver of the endowment effect.
  • Significant evidence emerged supporting the buy-sell strategy mechanism, where participants strategically adjust prices based on their role (buyer or seller).

Conclusions:

  • The findings suggest that strategic pricing, rather than loss aversion, better explains the endowment effect.
  • Implications for understanding market behavior, subjective valuation, and the effectiveness of different elicitation methods are discussed.